Excerpts from analyst's report
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Highlights of 2Q15
NOL reported a net profit of US$890m in 2Q15, but stripping out gains on disposal of APL Logistics of close to US$900m, the core net loss came to S$7.6m, much better than the US$59m loss last year. Just looking at the average freight rate decline of a staggering 16.7% yoy, we would have thought the losses would have widened, but the reverse happened instead.
NOL walked away from loss-making business
The key lies in understanding how less-than-optimally NOL had been running its business before this, and the decision that NOL took to aggressively put loss-making cargoes on the chopping board. NOL’s volumes fell 12% yoy in 2Q, on top of the 15% fall in 1Q, as it reduced its exposure to door-to-door boxes which required inland transportation, for which freight rates never fully compensated for the land-based costs. As a result, NOL’s unit costs fell 13.7% yoy during the 2Q, against single digit declines seen in prior years, and was also assisted by lower bunker prices, which fell 41% yoy. This move to a higher proportion of port-to-port cargoes, and a lower exposure to higher-rate door-to-door cargoes, partly explains why NOL’s freight rate drop fell so much.
Outlook could worsen before it gets better
Skipped sailings for the Jul-Sep period on the AE trade may stabilise the freight rates, but TP rate outlook for the next six months could remain at risk from a weak peak season and as no carrier has announced capacity reductions. Worse, BCO customers may start asking for contract rate revisions if spot rates do not pick up. The outlook may improve in 2016, but it is too soon to make this call.
Full report here.
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